District Heat Rates to Jump this Winter; City and School Budgets May Be Affected

By Phil Dodd

The average bill for users of the city’s district heating system will rise 22 percent starting in January under a new rate structure approved by the city council. The larger-than-usual increase is the result of debt service obligations and higher wood chip costs, city officials say.

Beginning January 1, the system’s “capacity” rate is jumping 23.5 percent and the “energy” portion of the bill is rising 18.8 percent, according to figures in a staff memo to the council recommending the rate changes for the city-owned utility, called District Heat Montpelier (DHM). The capacity charge covers the city’s operating, maintenance, and repair costs, including debt service. The energy charge includes the costs of fuel and electricity.

Todd Provencher, the city’s finance director, said the average capacity charge for the 2017–2018 heating season was $2,566 per month (charged for the 7-month heating season October–April), and the average monthly energy charge was $1,445 per month for the same period. If usage remains the same this heating season, the average monthly charges will rise to $3,169 for capacity and $1,717 for energy.

Provencher said the main reason the capacity rate is increasing is that the city, beginning in the next fiscal year, must start making principal payments on the $2 million bond used to pay for the system. Until now the city has only been making interest payments.

Provencher said the energy rate is going up largely because the cost of wood chips used by the state to heat the water for the system is higher, and those costs are passed through to the DHM. The state’s contract with its wood chip supplier expired, and the state put the contract out to bid recently, he explained. Only one company put in a bid, and it was substantially higher than the old contract, so costs to DHM for hot water from the state’s heating plant are increasing by about $50,000.

Three of the 20 buildings heated by the DHM are owned by the city (city hall, the fire station, and the police station) and one—the Union ElementarySchool—is owned by the school district, meaning the increase will likely have an impact on school and municipal budgeting. Heating costs will rise for those buildings this winter and likely stay elevated in future years.

Heating oil prices in Vermont have also jumped in the past year, up 26 percent to about $3 per gallon on October 29, according to the U.S. Energy Information Administration. However, heating oil prices now are lower than when the DHM began its first heating season in October 2014. At that time, heating oil was $3.22 per gallon. It dropped steadily for a couple of years after that, reaching a bottom of $1.80 per gallon in late February 2016 before beginning to climb again.

Provencher said it was unlikely DHM rates would take such a big jump next year. He said DHM plans to work with its customers this year to increase “compliance.” After taking hot water into their own buildings, users are supposed to return water that is about 50 degrees cooler, which leads to a more efficient system, according to City Engineer Kurt Motyka, but this is not always happening.

Some users are also seeing spikes in demand, which is also not efficient. Motyka said some of the problems could be cured by users installing new control systems.“Efficiency Vermont has an engineer helping us,” he said. “They can offer both technical expertise and financial incentives for new equipment.”

Other buildings currently on the system include City Center, the Kellogg-Hubbard Library, Vermont Mutual, Bethany Church, Christ Church, the federal post office building, and the Washington County courthouse. No new customers have joined the system since it began operation in 2014.

Provencher said potential users are only likely to consider joining the DHM system when their boilers need replacement. Motyka said there have been some conversations with the Unitarian Church, but he noted the church is not located right next to a distribution pipe.

Motyka said the Taylor Street Transit Center now under construction will not be using district heat, both because it is on the other side of the train tracks and because the developer wanted a system that could provide both heating and cooling, not just heating, which is all that DHM can provide.

There are plans to use district heat for radiant heating on the top floor of the new city parking garage in order to minimize salt damage to the concrete structure, Motyka said. The city has also had preliminary discussions with the developers of the proposed Hampton Inn and Suites hotel about tapping into the DHM system, he said.